Marginsqueezing

Marginsqueezing refers to a pricing strategy in which a firm seeks to compress the profit margins of other market participants by manipulating prices at different levels of a value chain. The term captures the deliberate design of price differences that can make it difficult for rivals, suppliers, or potential entrants to compete on costs or to operate profitably. It is closely related to the broader concept of a margin squeeze, but emphasizes the structural impact on margins across market levels rather than a single price point.

How marginsqueezing works. In a typical scenario, a vertically integrated firm or dominant platform sets wholesale prices to constrained downstream rivals that leave insufficient margin for profitable retail competition, given the retail price. This can deter entry or expansion, especially when the firm also controls essential inputs, access to customers, or key distribution channels. In platform ecosystems, a firm might impose low wholesale fees while maintaining higher consumer prices, effectively compressing the downstream margins available to sellers. The result is reduced competitive pressure and potential barriers to entry.

Contexts and concerns. Marginsqueezing has been discussed in sectors with significant pricing power and complex value chains, such as telecommunications, energy, logistics, and digital marketplaces. Regulators may scrutinize it as a potential abuse of dominance, particularly if it forecloses competition or harms consumer welfare. Economic analyses focus on whether the pricing structure leaves viable margins for rivals to compete and whether the behavior is intent-driven and anti-competitive.

Responses and debate. Authorities may require pricing transparency, impose price caps, or mandate access to essential facilities to counteract marginsqueezing. Critics argue that distinguishing aggressive yet pro-competitive pricing from abusive squeeze can be challenging and context-dependent.